Update: SAP profit falls in Q3; vendor drops sales forecast

SAP AG reported late Monday that its profits fell 5% year over year in the third quarter, and the software vendor canceled its previous sales forecast for the rest of the year.

Net income dropped to €388 million ($486 million U.S.) for the three months ending Sept. 30, compared to €408 million for the same period last year.

Software and software-related services revenue for the quarter was €1.99 billion, for a 15% increase year over year, and total revenue was €2.76 billion, a 14% jump over the year-earlier level.

"In light of the uncertainties surrounding the current economic and business environment, the company decided to no longer provide a specific outlook for non-GAAP software and software-related service revenues for the full-year 2008," SAP said in a statement. However, SAP did say that it expected its non-GAAP operating margin for the year, excluding a write-down of €180 million from its purchase of Business Objects SA, to be about 28%.

Earlier in October, SAP had warned that its third-quarter software and software-related services revenue would come in below expectations because of a significant drop in business during the second half of September — a problem that the vendor blamed on the worldwide financial and economic crisis.

"We entered a very difficult operating environment at the end of the third quarter," co-CEO Henning Kagermann said during a conference call today. "In my 26 years at SAP, I've never witnessed such a sharp decline in customer spending in such a short period of time."

The Wall Street Journal recently reported that some tech companies are expanding customer financing programs in an effort to sign more deals.

SAP is largely relying on partners to provide customers with credit, rather than lending its own money, said co-CEO Léo Apotheker. "What we're trying to do is help them find easier financing."

SAP has already begun cutting costs and plans to take more measures to reduce expenses during the fourth quarter, but Apotheker declined to discuss whether the company is also considering layoffs — at least for now. "We first of all want to finish 2008," he said. "Let's see what that brings, and then we can talk about other issues."

One particularly hot topic this year for SAP has been its decision to transition all customers to its fuller-featured but more expensive Enterprise Support service.

The controversial move has had no impact on sales, said Apotheker, who added that sales in Germany -- where the outcry from an SAP user group was particularly strident -- were "very strong" in the quarter.

"I'm happy to report that we have received a lot of feedback from customers and user groups, and Enterprise Support has been slightly enhanced based on the feedback," Apotheker said. "I am very confident the discussion is more or less behind us, or we're about to put it behind us."

"Several thousand" customers are now signed up for Enterprise Support, according to Apotheker.

But Apotheker's comments about customer acceptance stand in contrast to a recent Forrester Research Inc. survey of more than 200 large SAP users, which pointed to widespread discontent with the support switch.

Apotheker was less forthcoming about another high-profile initiative at SAP — its on-demand ERP software for midsize users, called Business ByDesign.

The company scaled back its rollout plans for the service earlier this year, deciding to initially focus on six markets: China, France, Germany, India, the U.K. and the U.S.

In the third quarter, Business ByDesign "had no impact, because it was not supposed to have any impact," Apotheker said. "We have made a very clear decision to drive Business ByDesign carefully, and drive it for profitability."

While Apotheker discussed healthy customer growth rates for SAP's other offerings for small and midsize users, Business All-in-One and Business One, he didn't disclose any specific figures for Business ByDesign.

Copyright © 2008 IDG Communications, Inc.

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